In the insurance world, we hear this question often, should I get life insurance on my parents?
Absolutely. You should buy life insurance on your parents, especially to help take care of the final expenses they’ll leave behind when they die.
Doing so will provide you and them peace of mind knowing that you and possibly your siblings will not have to deal with the cost of a funeral and burial while you’re mourning the loss of your mom and dad.
Table of Contents:
Why Buy Life Insurance For Your Parents?
There are several good reasons for buying life insurance for a parent.
It makes good financial sense even if you’re no longer a dependent and do not rely on them for financial support.
Cover Funeral Expenses
The most obvious reason why an adult child should think about buying life insurance for a parent is to cover the expense of their funeral and other final expenses that they’ll leave behind unless they have the cash to pass down to their surviving children.
Nowadays, the median cost of a traditional funeral and burial can cost in the neighborhood of $10,000 when you add together the price of a burial plot, headstone, and a typical funeral service. Moreover, even if you go the cremation route, you can still expect about $5,000 for a cremation and funeral service.
So, if you are fairly sure that either one or both of your parents do not have life insurance to cover their final expenses, it’s a great idea to buy an affordable life insurance policy now, instead of having to pay out-of-pocket later.
Believe it or not, there are a lot of seniors who do not have life insurance or don’t have enough life insurance, and they’ll not typically discuss this with their children.
As a parent of adult children, I know I would feel extremely uncomfortable having that conversation with my kids and maybe even a little embarrassed.
How to Get Life Insurance For Your Parent
Like with any financial transaction, it makes sense to have a plan that can take you from point A to point B.
You Have To Get Consent
Although life insurance companies recognize that children have an insurable interest, your parent(s) will have to consent to you buying life insurance because of the medical underwriting involved.
Chose The Death Benefit Amount
Next, you’ll need to consider what the death benefit should be. If you’re planning to buy a policy just to cover expenses that may be passed on to you, the average cost of a funeral is typically about $10,000 to $12,000.
Choose a Beneficiary
If you’re an only child, it’s a no-brainer. But, if you have siblings that will be involved, you should have one beneficiary and at least one contingent.
Should You Buy Term or Whole Life Insurance
Most people are aware that term insurance is a lot cheaper than whole life insurance, but there are a couple of things you should consider before jumping on the cheap term bandwagon:
- Term Life Insurance is not permanent, so if a parent were to pass away after the policy expired, there would be no death benefit; thus all of the premium went down the drain.
- Even if your parents could medically qualify for a term policy (there are no medical exam policies available), most term insurance providers are unwilling to offer a policy with a death benefit of less than $25,000 or $50,000.
Whole life, on the other hand, is permanent insurance and is why most final expense policies are built on the guarantees and benefits found in whole life insurance.
- The policy cannot be canceled by the insurer for any reason other than non-payment of premium.
- Once issued, the periodic payments cannot be increased by the insurance company for any reason whatsoever. This means if your parent is diagnosed with a critical or terminal illness and has to go into long-term care, the premium payment remains the same.
- Whole life insurance policies build cash value over time, so the policy does become an asset that you could use in the event of a financial emergency.
Cost For Term vs. Whole Insurance
To give you an idea of what you are looking at in terms of premium payments, please see the actual insurance rates listed below.
Since an average funeral and burial service will cost somewhere between $10,000 and $12,000, we are providing life insurance rates for a $25,000 policy for a male and female non-smoker in average health.
Term Life Insurance Sample Rates
|Parent’s Age||Male Non-Smoker||Female Non-Smoker|
The term rates listed above are for a 20-year policy. At expiration, a renewal is offered based on the policyholder’s attained age and will go up every year accordingly until age 90.
The rates are for a no-medical exam policy, and rates are subject to underwriting approval.
Whole Life Final Expense Insurance Sample Rates
Here, we’ll use the same assumptions we used for the term insurance, but remember, whole life insurance provides coverage and builds cash value over time.
|Parent’s Age||Male Non-Smoker||Female Non-Smoker|
The rates listed above are also for no exam life insurance, but the companies offering whole life final expense insurance use more liberal underwriting standards than a company that offers term life for final expense coverage.
Certainly, if you are planning to buy life insurance for a parent who is less than 60-years old and in very good health and doesn’t use tobacco, the term policy is going to be the cheapest solution. But remember, at the end of twenty years, that policy will go up significantly at renewal and then every year after that because the rates will be based on the new age each year.
Parents Health and Medical History
There is one other thing that needs to be discussed when we’re talking about life insurance for parents, and that is their health.
Even though neither the term policy or the whole life policy we looked at requires a medical exam, there will still be health questions on the insurance application.
If your parent(s) has a medical issue that the insurance company won’t accept, the term policy becomes a moot point, but the whole life policy is still a viable option.
Companies that offer whole life final expense insurance generally have three plans that are used when medically qualifying an applicant. If the applicant doesn’t qualify for a level benefit policy with the lowest rates and first-day coverage, the company will offer a graded benefit policy with somewhat higher rates. They will also offer a two year waiting period where they will pay less than the full death benefit for death due to natural causes. Accidental death is covered from day one.
If the applicant has severe or multiple medical issues and doesn’t qualify for the graded benefit plan, the applicant can get coverage using a guaranteed issue final expense policy.
The guaranteed issue policy will cost quite a bit more and have a two-year waiting period for death from natural causes, but virtually any person who is alive can get coverage.
Should You Get Life Insurance For Your Parents?
If you discover or suspect that a parent does not have life insurance, talk to them about it. If he or she is unwilling to buy an insurance policy (for whatever reason), offer to take care of it.
If you don’t do something now, you will likely have to pay out-of-pocket for a funeral service on top of losing a parent.